Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (April 2011)
39 slides from Proassurance's investor presentation, Apr 8, 2011
Slide 1: Forward Looking Statements and Non-GAAP Measures
This presentation contains Forward Looking Statements and other information designed to convey our projections and expectations regarding future results. There are a number of factors which could cause our actual results to vary materially from those projected in this presentation. The principal ris
Slide 2: ProAssurance: Corporate Profile
Consistently Successful Throughout the Insurance Cycle Specialty writer of professional liability insurance, primarily Medical Professional Liability (MPL) Market Cap : ~$1.9 billion Total Assets: $4.9 billion Shareholders’ Equity: $1.9 billion Founded in 1975 / Demutualized to a public company in 1
Slide 3: ProAssurance: Business Profile
Company 2009 DPW (000’s) Share Comments 1 Medical Liability Mutual $ 756,844 7.0% 78% in NY, 22% in NJ 2 Medical Protective $ 727,160 6.8% Berkshire subsidiary Direct competitor 3 Doctors Company $ 601,223 5.6% Non-public Direct competitor 4 ProAssurance $ 541,031 5.0% 5 AIG $ 524,252 4.9% Not a dir
Slide 4: ProAssurance: Geographic Profile
ProAssurance Footprint ProAssurance: Geographic Profile Writing across the United States, ProAssurance has broad geographic diversification Each state presents unique medical and legal challenges Regional structure provides the local knowledge that differentiates ProAssurance Corporate Headquarters
Slide 5: ProAssurance: Risk and Distribution Profile
2010 Premium: $533 million ProAssurance: Risk and Distribution Profile We insure a broad range of healthcare risks, from home health providers to large hospitals Focus on individual physicians and physician groups Rated “A” by A.M. Best and Fitch Dual distribution in DC, Texas and parts of Missouri
Slide 6: M & A Update
M & A Update Financial Highlights Acquisition of American Physicians Services Group (APS) closed November 30, 2010 Announced September 1, 2010 Valued AMPH at $32.50/share—approximately $233 million paid to AMPH shareholders 1.3x Book Value or 11x First Call EPS estimate Insurance Highlights We are n
Slide 7: We Expect to Continue Growing Through M & A
Physicians Ins. Co. of Michigan Completed 11/30/10 We are skilled at finding M & A opportunities, conducting in-depth due diligence and integrating resulting acquisitions 2009: Consolidation of: Mid-Continent General Agency 2009: Consolidation of: Mid-Continent General Agency Georgia Lawyers Insuran
Slide 8: De Novo vs. Acquisition M & A and the Insurance Cycle
De Novo vs. Acquisition M & A and the Insurance Cycle The Case for Growing Through M & A Legal and regulatory environment must be favorable Not all M & A opportunities should be pursued The key is understanding why companies are available We don’t “bet the farm” and can acquire without “breaking the
Slide 9: Strategy & Operations: Differentiation is the Key
Strategy & Operations: Differentiation is the Key
Slide 10: Current Industry Status
Current Industry Status We are in a period of “benign profitability” Prices have been falling yet profitability remains at attractive levels We have seen no new large scale market entry from larger commercial competitors Some consolidation among “mid-decade” start-ups
Slide 11: Differentiate Through Claims Defense
ProAssurance: 82% Favorable Outcomes Industry: 73% Favorable Outcomes Differentiate Through Claims Defense Our deep expertise in claims defense has always set us apart Our financial strength gives our insureds the opportunity for an uncompromising defense of their claim Our successful approach to cl
Slide 12: The Ohio Example: 2005 - 2009 Data
Fewer Claims Closed With Indemnity More Claims Defended in Court Lower Average Indemnity Payment per Closed Claim The Ohio Example: 2005 - 2009 Data Comprehensive, reliable data provided by the Ohio Department of Insurance Broad range of competitors and business approaches www.insurance.ohio.gov/Leg
Slide 13: Claims Trends Remain Favorable
ProAssurance Claims Tried to a Verdict New Claims Opened Each Year Claims Trends Remain Favorable With frequency down compared to mid-decade the result is fewer cases to try Severity trends steady and manageable Trends are much the same in states with or without Tort Reform
Slide 14: Loss Trends and Rate Actions
Physician Rate Change History 1 Premium Retention History Loss Trends and Rate Actions Rates on renewing physician business down less than 14% from peak pricing in 2006 Improved frequency trends are reflected in recent rate declines Improvement in frequency has outweighed a steady, manageable rise i
Slide 15: Stringent underwriting standards
We enforce stringent underwriting standards to maintain rate structure and enhance profitability Underwriting process driven by individual risk selection and assessment of loss history, areas of practice, and location Rate filings consider the results of the past five to seven years to ensure a sing
Slide 16: Conservative Approach to Reserves
Net Favorable Reserve Development Net Reserve per Open MPL Claim 1 Conservative Approach to Reserves No change in the historic reserving practices that have produced favorable net reserve development in each of the last eight years Conservative reserve strategy provides protection against a loss tre
Slide 17: Tort Reform Resurfaces
Tort Reform Resurfaces Federal Tort Reform has reappeared in Washington Lots of smoke, so far no fire in Washington Resurfaced during President Obama’s State of the Union Speech Multiple bills being pushed by Republicans in the House, at least on bill introduced in the Senate Democrats have offered
Slide 18: The Potential Effects of Healthcare Reform
The Potential Effects of Healthcare Reform No meaningful Tort Reform in the bill No immediate effect on the medical/legal climate Demonstration projects do not provide meaningful reform or immediate data Known: More customers for us We have enhanced our ability to write new classes of business throu
Slide 19: New Products for a Changing Market
New Products for a Changing Market Insurance partnership with Ascension Health Largest Catholic healthcare system in the US 38 ministry locations in 18 states Pilot partnership in Michigan to offer coverage to ~1,000 affiliated physicians not employed by Ascension Insurance operations performed by P
Slide 20: Long-Term Financial Strength Sets Us Apart
Shareholders’ Equity Total Assets Long-Term Financial Strength Sets Us Apart Ensuring the strength of our balance sheet is our top financial priority Financial strength differentiates us in the market The claims defense philosophy that differentiates us in the market leverages our financial strength
Slide 21: Financial Performance and Investments
Financial Performance and Investments
Slide 22: Performance Recognition
Operating Ratio Combined Ratio Loss & LAE Ratio Return on Surplus Performance Recognition Leading industry operating performance in 2009, ranked by Moody’s top 100 property & casualty insurers ProAssurance ranks 79th by premium, but outperforms in key financial measures Fourth straight year in the W
Slide 23: Operating Net Income, Investment Income, Premiums Written
Consolidated Operating Net Income 1 Net Investment Income Net Premiums Written 1 Excludes the after-tax effects of net realized gains or losses and guaranty fund assessments or recoupments
Slide 24: Overall Portfolio and Fixed Income Portfolio
$4 Billion Overall Portfolio $3.6 Billion Fixed Income Portfolio CUSIP-level portfolio disclosure on our website: www.proassurance.com/investorrelations/supplemental.aspx Investments Balance Risk vs. Return Average duration: 4.1 years Average tax-equivalent yield: 4.8% (1) Investment grade: 97% Weig
Slide 25: The Importance of Investment Income
Trial and Appeals Life Cycle of a Typical Claim The Importance of Investment Income Investment income compounds significantly due to the long-tail nature of the MPL claims cycle Lower investment results place greater emphasis on quality underwriting to achieve a combined ratio below 100% Year Year Y
Slide 26: Return on Equity and Investment Returns
Long-Term ROE Target is 13% The Yield Trap Pricing discipline becomes even more critical in a low interest rate environment Lack of investment yield may be a hard market catalyst Return on Equity and Investment Returns Assumes a 1:1 premium to surplus ratio for physicians professional liability clai
Slide 27: Conservative Use of Debt and Low Leverage
Debt to Equity Strong Capital Position Conservative Use of Debt and Low Leverage Low Debt to Cap Ratio No strain on cash flow No Debt Prior to 2001 Prepared for an improving market
Slide 28: Capital Management
Share Repurchase History Excess Capital vs. Excess Capacity Capital Management Dividends No current dividend to shareholders Regular evaluation by Board/Management Ongoing commitment of cash is a key consideration Share Repurchase $106 million spent in 2010 to buy 1.8 million shares $315 million spe
Slide 29: ProAssurance
PROASSURANCE. “rested Faly
Slide 30: Current Prices Present a Compelling Buying Opportunity
Current Prices Present a Compelling Buying Opportunity Current Price to Book: ~1.0x Average Since Inception: 1.4x Driven to Excel / Focused on Shareholder Value Maintaining our profitability and book value growth Outstanding performance in a challenging financial market and a demanding line of insur
Slide 31: Supplemental Discussion Materials
Supplemental Discussion Materials
Slide 32: Management Team
W. Stancil Starnes, JD Chairman & Chief Executive Officer sstarnes@proassurance.com (205) 877-4400 Company Tenure: 3 Years Prior MPL Experience: 29 Years Industry & Related Experience: 32 Years Formerly in the private practice of law in MPL defense and complex corporate litigation. Victor T. Adamo,
Slide 33: 2010 Financial Highlights
December 31 2010 2009 Gross Premiums Written $ 533,205 $ 553,922 Net Premiums Earned 519,107 497,543 Net Investment Income 146,380 150,945 Net Income (Includes Investment Losses) 231,598 222,026 Operating Income 219,457 215,210 Net Income per Diluted Share $ 7.20 $ 6.70 Operating Income per Diluted
Slide 34: Portfolio Detail: Asset Backed
Asset Backed: $732 Million Weighted Average Rating: “AA+” Breakdown of Agency MBS Holdings Sub-Prime: $12.5 mln Market Value (AFS) $374,000 unrealized loss ProAssurance Portfolio Detail: Asset Backed 12/31/10 CMBS Details Provided on Page 33
Slide 35: Portfolio Detail: CMBS
ProAssurance Portfolio Detail: CMBS $99.4 million Fair Value in non-agency CMBS Book Value: $96 million (3% of fixed income portfolio) No cumulative losses in our CMBS portfolio 12/31/10
Slide 36: Portfolio Detail: Municipals
Municipals: $1.2 Billion Sources of Revenue Backing Municipals ProAssurance Portfolio Detail: Municipals 12/31/10 Investment policy has always required investment grade rating prior to applying the effect of insurance
Slide 37: Portfolio Detail: Equities & Other
Equities & Other: $168 Million ProAssurance Portfolio Detail: Equities & Other 12/31/10
Slide 38: Portfolio Detail: Corporate
Corporates: $1.1 Billion ProAssurance Portfolio Detail: Corporate 12/31/10 Weighted Average Rating: A
Slide 39: Portfolio Detail: Various
Treasury / GSE: $295Million Short Term: $168 Million BOLI: $50 Million ProAssurance Portfolio Detail: Various 12/31/10 Rated A1/P1 or better Money Markets: Moody’s: Aaa S&P: AAA Weighted average rating Moody’s: AA3 S&P: AA- A. M. Best: A+